In this insightful episode of the Clarity Podcast, host Aaron Santmyire engages in a compelling dialogue with Scott Larson, a renowned tax expert specializing in the financial intricacies faced by pastors and missionaries. The conversation revolves around Larson's pivotal work, 'The Tax Man Cometh', which serves as a comprehensive resource aimed at elucidating the complex tax landscape that ministers must navigate.

Larson articulates the critical need for pastors to understand their tax responsibilities, particularly the distinction between their roles as employees and self-employed individuals under the tax code. He sheds light on the prevalent misconceptions that hinder many in ministry from making informed financial decisions. For instance, Larson reveals that many pastors rely on anecdotal advice from peers rather than consulting qualified tax professionals, which can lead to detrimental financial missteps. He emphasizes that this reliance on informal networks often results in confusion and fear, particularly regarding self-employment taxes and the implications of housing allowances.

As the discussion progresses, Larson underscores the importance of proactive tax planning and the necessity for pastors to seek out knowledgeable advisors who can help them structure their financial affairs. He advocates for a shift towards greater financial literacy within the ministry, positing that a deeper understanding of tax laws not only aids in compliance but also empowers ministers to optimize their financial health. This episode ultimately serves as an essential guide for those in ministry, equipping them with the knowledge and confidence to navigate their tax obligations effectively.

Takeaways:

• This podcast episode emphasizes the critical importance of understanding financial realities for missionaries and ministers.
• Scott Larson provides invaluable insights into navigating the complexities of taxation for religious leaders, which is often misunderstood.
• The discussion highlights the misconceptions that many pastors have regarding their tax liabilities and the importance of proper tax planning.
• Listeners are encouraged to consider their financial futures by actively engaging in retirement planning through vehicles like 403B accounts.
• The episode underscores the necessity of professional guidance, as many pastors receive inadequate tax advice from unqualified sources.
• Emphasizing proactive financial stewardship, Scott Larson stresses the significance of accurately reflecting one's ministry in tax filings.

Hey there and welcome back to the Clarity Podcast.

This podcast is all about providing clarity, insight and encouragement for life and mission.

And my name is Aaron Sandemier and I get to be your host.

Today we have on the podcast Scott Larson where we sit down and discuss his book the Tax Man Cometh.

Got to hear him speak and share and thought he'd just be a great person to have on the podcast.

You know, we, I tried and have over the 350plus odd episodes, tried to have different people with different perspectives, all to help provide clarity in life and mission.

And you know, the realities of finance in the ministry and for missionaries are something that greatly impact people, whether that's getting you to the field or staying on the field because of financial realities.

And so Scott provides perspective when it comes to taxes.

Something that, you know, we all have to navigate but just gives us wisdom and insight.

I know a lot of we get our wisdom about ministerial tax things from each other and sometimes missionaries and ministers are not necessarily tax experts.

And so this is what Scott does.

This is what he's dedicated his life to, specifically helping ministers and missionaries how they can navigate their taxes and all that goes with that.

So you'll enjoy it.

He's fun, he's entertaining and a lot of great content.

Do ask you to continue subscribe to the podcast.

I know the podcasts I subscribe to are the ones I listen to and many of you, I want to thank you for listening over the years and and we continue, continue moving forward and continue to send in your questions for back to with foe.

That's where we get to sit down with Dick both and get to learn from him.

Always enjoy having.

Well, there's no time better than not to get started.

So here we go.

Greetings and welcome back to the Clarity podcast.

So excited to be here today with a new friend podcast.

Scott, welcome to the podcast.

Well, thank you for having me, Pastor.

It's my honor and it's a privilege.

Yes, I got to hear you share on Potomac Network meeting with Pastor Mark Lehman.

And this would be a phenomenal person to have on the podcast with your wisdom and your experience.

And so before I jump into a list of questions I have from your book the Tax Man Cometh, could you share a little bit about yourself?

Oh boy.

My grandpa was a Lutheran minister.

My dad was a plumber.

My mom was a teacher before you had to have a degree, that type of stuff, you know.

So being a pastor's grandkid, I think the only thing I remember is my dad was an usher.

Because my grandpa was a pastor and that didn't sit well.

But other than that, I love the church.

I love the sermons.

They were 15 minutes, 12 minutes long.

And they're always about one point in an illustration, which I think we could all learn something from.

But we will go into that later anyways, later in life when I got out of my rebellious stage, you know, searching for God and all that.

But after I found him, God places Baptist pastor, you know, in my path.

I hung out with this kid back in my partying days and he just told dad, yeah, he does taxes.

You know, I hadn't seen him in 10 years, and next thing you know, he said, I want you to do my taxes.

I said, I don't know how to do pastor's taxes.

It's back in the 80s.

Yeah.

And he goes, he gave me a book by the Baptist.

I don't even know if Guidestone was there then, but he gave, gave me a booklet on how to do pastor's taxes.

He goes, you read it and you come back next week.

He forced me to learn it.

I didn't want to.

Yeah.

But then I got, you know, then I got saved, or I just got saved.

And I said, you know what?

It's an honor because of my insecurities from, you know, the party age or whatever of just growing up, that if I, you know, could be included with the pastor or even honored to speak with them, to give them advice, that's what I should do, add value to pastors.

Well, over the years, I became an expert in taxes and financial planning.

I'm a cpa, a certified financial planner.

And in my off time, I need to serve churches and pastors and I could afford to do it on my own dime.

I would always go down and just offer advice and that.

And probably because of my insecurities, I said, well, I cover it with the, if I had value first, then they can pay me.

But the whole thing is, what if I didn't add any value?

I'm not going to ask them for money and have them diss me.

So it's a lot easier to get a rejection.

It's hard to get a rejection when you don't charge them.

Sure, sure.

But ends up on the tax end of it.

I spent all my life just helping structure people, you know, the Valmont of the world, the Jeff Doves of the world, you know, Rick Collins and all these people, and helping them, you know, just for a way to give back.

And in the long run, they kept telling me, yeah, I guess you Know what you're doing.

Yeah.

So I said, you know what?

I need to start going after it, start doing something.

And it wasn't necessarily just to start marketing it, but I said, I got to put it down in the book because pastors don't have a reliable source to go to.

Yeah.

You know who's going to be the answer man for the pastor.

Yeah.

And right now it's other pastors, and that's not good enough.

That's it.

That's it.

And you hit on that in the book on the.

You talk about different places we go for tax advice.

Would you share.

Share those?

I think you said one of them's pastors, one of them's friends or something like that.

Well, pastors get 71% of their tax information, mother pastors.

And as much as that's.

Ha ha, make light of it, it's a joke in the preparer's world.

The sad part is why.

And the why is because you don't have anybody else you can trust.

You go to a tax preparer.

I talk to pastors all the time.

They've been to five or six different tax preparers over their last five or seven, eight years, and they get different answ.

And then they talk to their friends, other pastors, and they get different answers.

Number one complaint I have with doing this online stuff with the book, and that is pastors saying, we can do that.

Are you sure?

Or, you know, I mean, they don't know what to believe because they've heard so many different things, and it confuses them, it makes them scared, and it's a huge problem.

So my goal is to play the long game, to give them advice that they can use in the culture that they need.

If they can't be proactive to a certain degree, well, do what you can, but start changing your perspective of how you view yourself, how you act, how you do your ministry.

To the point of the number one goal in anybody's life, but especially pastors, is learn how to reflect how you live your ministry on your tax return to the best point possible.

And there's accountability on their end, but more accountability on mine.

They don't want to learn it.

I'll tell them how.

But if they want to learn how, I can tell you what it means.

Wow.

Wow.

So I guess that this kind of begs the question that, you know, pastors and taxes, and there's obviously a history there that the pastors are different.

So could you share kind of the history behind the pastors and taxes and why there's a difference and some of the reasons it's different from my dad was a railroader, he worked for csx.

So what would be the difference from Aaron, his son, pastor, missionary, versus my dad who's a railroader and work for csx?

Well, completely, you know, sort of diametrically opposed.

But there's two questions there.

The history of it is there wasn't any history.

And in the beginning of time there was only missionaries, okay?

Because anybody in the Wild west and all that, they went out as a pastor, you might as well call them a missionary pastor.

Nobody knew.

I mean, when did Assemblies of God send Gusta Bergstrom to Brazil or whatever?

In the 20s or something, you know, I mean it's a long time ago.

It's a whole nebula.

You know, it's a bizarre situation there.

But there wasn't any rule.

There wasn't.

So when that started, nobody knew what to do.

So either it wasn't tax.

But you gotta remember in the beginning with pastors, they were taken care of like the Amish by the participants.

They weren't supported by the church.

Okay?

There was no church support of pastors in the beginning.

Then it became a business, you know, in the later business, because there's, you have to be.

When you become denominationalized, you have to become organized and call organization business or call it a group or a denomination doesn't matter.

It's an organization.

And what happened is there was no accountability.

So in pastors were just like missionaries.

Missionaries claimed they're self employed, but it didn't matter.

After the depression they wanted to give all the self employed people a way to get into the Social Security system.

So they developed the self employment tax.

It wasn't 15.3%, but that's what we know it as now.

It was real small back then, but it allowed people to be in the Social Security system.

So it is all basically sika se tax, whatever.

Self employment tax is all pastor's way of having a retirement based on the Social Security system.

That's why when you exempt out of Social Security, you're exempting out of Social Security.

They don't say you're exempting out of self employment tax.

Well, because self employment tax is a pastor's Social Security.

It is the way you fund your Social Security account.

And everybody was an expert and knew what they were doing compared to what the IRS expected.

So they paid both halves of the Social Security tax, the SC tax at 15%.

A pastor doesn't.

Okay, so if you're a missionary, you know, minus your housing because that's, you know, that would be minus anyways.

So it's not subject to income tax.

You can get program expenses and all that mileage.

We get that down to zero.

You'll have zero federal income tax because you're foreign income exempt on up to X amount.

But you'll owe self employment tax on your housing unless you have more expenses to have a loss on your ministry.

But again, that's a topic for another day.

The pastor on the other hand has a W2 for 70 grand minus his $30,000 housing.

He's got a 40,000 W2 and he can't take his ministry expenses against the 40 grand.

But if you know that there still is a law that you can expense those or reduce your self employment taxable income by your unreimbursed expenses.

You can't do it as an itemized deduction anymore as a ministry expense quote, employee business expense.

But you can take all your unreimbursed miles against your self employment taxable income.

Wow.

Which most the big guys, the clergy advantage.

Some of the guys that do a ton and work with the people that design the rules, they probably know how to do that.

I'm not the only one.

I mean but I venture to guess it's 75, 70, 80% that don't.

The tax preparers in America do not know or don't take their expenses.

The other half is even if the tax preparers knew how to take the expenses off against your tax return.

They're not proactive to know which ones because they don't know past.

They know pastors enough to enter your W2 and charge you self employment tax on your housing, but they don't know how to plan your salary package, plan your 403B, plan your W2, and if they don't know how to ask you questions to structure your salary compensation or your compensation package as a whole, you're probably at the wrong place.

Wow.

Because if you just drop your information off at your tax man and wonder, why do I owe so much?

Well, it's because he didn't know the questions to ask you.

He didn't ask you about your housing allowance, about your salary package, what's in it.

He didn't know the tax impacts of how to structure your compensation package.

And you have to do that to actually make sure that you're doing the, the church and the pastor are getting the best outcome tax wise.

You can't minimize your taxes without knowing your client and your product.

Yeah.

And the tax preparers do not know their client because there's no money in it.

There's money in counseling the church.

There's no money in counseling the pastor.

Yeah, it's true.

That's true.

Not the only reason, but yeah.

Yeah.

Oh, it's, it's a business.

Right.

You get, you have to run a business, you have to make money.

That's just, that's just the part, that's the part of it.

Yeah.

Yeah.

It's the way it is.

Yeah.

It's not bad.

No, it's just, it's just a reality of the world we live in.

You talk about some of the myths, myths about pastors and taxes.

And you mentioned four horsemen of the Apocalypse, I think, or something like that in the book.

So.

Can you share about those?

Yeah, I thought that was just a cool name, actually.

It is.

I, I remembered it so it was catchy.

It's just like the Taxman Cometh.

I came up with that name, you know, 20 years ago, thinking it might be like the Grim Reaper and just taxes on everybody.

And then, you know, lo and behold, I'm writing a book for pastors and it applied, you know, but no, the, the myth, when I was doing, I wasn't even thinking of the book or anything like that at the time.

But I always structured pastors on the side, helped them.

And I said I should just set up a pastor sample client that I can just erase the data and just Keep reusing just to do planning for.

So I did that and I said, you know what?

I might as well do it for a normal person, too.

A mechanic.

I called them and I just said, you know what, what's the average pasture make?

And I looked it up and it was 40 to 60 grand.

And the median was 51 when the study I had.

And I said, okay, I'm going to use 50 grand for the pastor with a 25,000 housing allowance, and he'll get a W2.25 grand.

And the mechanic makes 50 grand.

He gets a W2 for 50.

They're both married with two kids.

Just keep it simple.

This straight.

And I said, okay.

So I asked over the course of a year to all the pastors, just by a joke, I said, you know, who pays more taxes when they file, the pastor or the Mechanic?

And all 400 said the mechanic.

Which is the common sense natural, you know, obviously, you know, you know, it's a trick question because you read the book, but the pastor pays $1,065 more on 50 grand with no taxable income than the mechanic.

And everybody was like, huh?

And then I said, they got to pay both halves of Social Security.

Oh, yeah, yeah.

But all 400 pastors, business administrators, and denominational people that do this for a living all got it wrong.

Wow, wow, wow, wow, wow.

So I said, the only thing that means is they're not stupid.

This is not this.

They're afraid of it.

And there's so many differing opinions out there, they don't know who to trust and they need help.

Yeah.

And that's why the biggest reason that anything I do is going to be successful in helping people is only because the 71% pastors get 71% of their information that people aren't qualified.

And that just means there's a huge need or they wouldn't be doing it.

It.

Yeah, yeah.

No, it's true.

It's true.

So the mechanic, you know, the pastor and the mechanic is the true thing.

That is the whole difference.

Yeah.

And then the expenses you can write off as a person in Social Security against your Social Security taxable income.

It's.

But you're.

I think what you've hit on there is the fear, you know, And I'll be honest with you, I've always wanted to figured I'd rather pay more in taxes because if it's not clear you'd rather pay more than get it wrong and then be the pastor who's in tax trouble.

You know, I mean, that's.

You Know, okay, but listen to, just listen to what you said.

I'd rather pay more upfront than to get into tax trouble.

Well you know what, what's wrong with that picture of I'd rather pay 2 or 3,000 more a year than to get what I'm owed.

Sure.

Instead of you know what, I'm going to take all these expenses.

The 15,000 miles instead of none or the 12,000 instead of none because I know I drove them in my life's ministry.

And yes, it' required giving they nobody, not many of the assemblies of God, which it is by letter ruling a law that you can subtract your dues your tied to the district against your Social Security taxable income and have a completely federal income tax and self employment tax free.

A lot of them take it as a charitable but most pastors don't itemize so it's a waste.

But you can take it against your self employment tax.

Interesting.

So the whole thing is what I challenge pastors and they got to do it on based because like you a lot of people are so afraid of it and insecure about the IRS and oh my God, my image or you know, whatever the standing I don't want to have as a representative.

The church say that I'm dishonest.

Well I ask a lot of IRS auditors over the years.

I said, you know, how do you look at that?

Well, pastors are represented the church in the community.

I said, huh.

First thought I had is why don't they think so?

And then it's like what does that mean?

They'll say Pastor, if 90% of how many miles you're done?

I handed in the church because they can't afford it or whatever.

It's only church business.

I said is your life ministry?

Is your life.

The church church you're called by God or the church.

So if you're called by God, the IRS is right.

You're represented the church in the community.

If you're called by the church, maybe it's your job.

Well if your ministry is called by God then how come you aren't reflecting how you live your ministry on your tax return?

You're reflecting your job on your tax return.

Wow.

Wow.

And so job related expenses.

But your job is to be a representative of the church in the community.

That's how the IRS looks at you.

If you live your ministry that way.

Yeah.

So that's the challenge.

Live your ministry that way and actually be a minister, which all missionaries are.

I mean that is Their life.

Right.

So aren't pastors that way, too?

Yeah.

And they get mad at me.

I'll say, well, if 90% of your life is ministry, how come 90% of your miles aren't?

And the light bulb goes off?

And it's not to say that you can deduct 90% of your miles, but people got to change how they look at themselves.

They got to look at it from being proactive to take what you can claim what you deserve, not in what you incurred, not, oh, my God, I can't take anything because I'm afraid.

And I was talking to George Wood when he was superintendent, Elton Garrison and Ron Barfield, you know, we're good friends, and we had a meeting for Ag Trust as one of the founders with those guys.

And so we're having our quarterly meeting.

And they had thrown me under the bus the meeting before for having the only secular guy.

So I.

They said, you going to come to dessert with us or are you going to have a cigar on your patio?

And I said, hey, I'm going to have a cigar on my patio.

You guys want to join me?

And I was like, ron Barefield, you threw me under the bus.

So anyways, next meeting.

Meeting, I'm going to get back at these guys.

So I'm sitting there and I said, you know, there's a group out there, Pastor Wood, Pastor, that's telling all your pastors that they don't need receipts to file their taxes.

And he goes, oh, my God, blah, blah, blah.

And they're talking amongst the five of them and blah, blah, blah.

And they're all getting upset.

And I said, I'll take.

Take care.

I'm going to have my cigar.

No, you can't leave.

You can't leave.

Who is this?

We got to let everybody know.

And I said.

Said, it's the IRS in an audit.

You have to prove it, okay?

So just because you can't prove 12 or 15,000 miles doesn't mean you shouldn't take it.

Now, some people wouldn't, and I don't blame them.

And that's up to them.

I'm not trying to preach how you feel about things, because if you can't sleep with it, don't do it.

Okay?

You know, but if, you know, you drove the miles, you can claim it.

And if you're in the Social Security system, that'll dock 15.3% off the taxpayer bill.

That's the big difference.

I mean you've got to go through these gyrations as a pastor, as a missionary, it's automatically deductible.

You do it from income tax and Social Security tax.

As a missionary, you can only durn on self employment tax if you're a pastor, if you're in the self employment in the Social Security system.

Unless you have an accountable plan, that kind of stuff, which is bringing the church involved in resolutions and all that kind of stuff.

Sure.

So it's how pastors view themselves that's important.

And how do you reflect your culture of how you live your ministry on your taxes?

Some are going to be, I'm not going to take that, I can't do that.

Well then you just, we help you figure out what your withholding is and what your estimates are so you don't have surprises.

But you know, we also, you know, the retirement, the 403B, the housing allowance, how to maximize it.

You know, everybody needs advice on that.

Even more.

So if you're exempt from Social Security, you need advice on the housing allowance or a missionary.

The more you can have in housing allowance, the less you're going to have to income tax.

But if you're a missionary, you don't have anything subject to income tax because none of the missionaries make over the, you know, the exemption for foreign, you know, earned income.

Right.

So the only thing you have to worry about is self employment tax.

So you want to maximize your normal expenses.

So it's a just a dichotomy of what the priorities are.

Wow.

And, and as you said, is, is understanding all the, all the differences.

So a B pastor.

Many of the pastors and Assemblies of God are bivocational.

Yeah, about 40%.

Yeah.

So maybe they serve as, as a mechanic or something and then they're also a pastor.

How does that impact somebody who's bivocational?

Well, depends where they're at.

And there's a chapter in the book on bivocational.

But when I look at bivocational, we're usually looking at a smaller church.

Churches are 150, 125 or less.

75% of the churches in the Assemblies God and most denomination.

So what that means is they can barely afford to pay their pastor.

And if they're down in the 30, the 50, the 75, it's usually somebody that got called, you know, by God to lead a church, but he's already got a job.

Yeah, it'd be like me, all of A sudden being called and I'm going to lead a church, well, I've got to can't quit my day job until I can replace it.

Which means if God wants us to work, he's going to have to grow the church.

So if you're in that position where they can't pay you, you don't have to worry about it.

Everything you do is a charitable expense.

If you're in the position where they give you 500,000, 2,500amonth and you know, call it 30 grand a year and you're ordained or licensed, you can put it all as a housing allowance.

But what I always recommend is you got to think of things first.

If it's your first two years of ministry and you're just called, but you're already in the Social Security system, can you answer the questions and feel ethically okay about it and exempt out of Social Security?

First two years you're already in the Social Security.

So on your secular income, so you don't need government services because you already qualify.

And what it reads is you're opposed to have government services based on your ministerial income.

Well, you can honestly say, yeah, I don't need it for my ministerial income, so I'm opposed to it.

But you got to be able to live with that, okay?

And I see a lot of people because 70% of the old school that exempted out were just told to exempt out and they didn't have a clue.

And so if people can live with that, life goes on, I'll help do it.

But they can exempt out in the first two years, set it all as housing allowance and that 30 grand or whatever their income is is all tax free, never pay a dime of anything and they'll still qualify for Social Security under their bi vocational job.

Now they won't be adding to their Social Security.

And everybody has to realize all of these tax planning things and all this stu usually is just helping you eliminate some of your taxes now, but it might make yourself Social Security checked less later.

Okay, but in the beginning, when you're trying to make it, when you're growing, when you have a young family, that's when you need the money the most.

But that's also the best time to be funding your retirement.

So if you, you know, it's really a catch 22, but everybody and it's all situationally different, there's no right answer for any one person.

But with the bivocational you start off there's a hierarchy of structure of a compensation package.

Real quickly it Would be you look at.

Okay, we're going to give them 30 grand as a bivocational pastor.

Well what do you have in mileage?

What do you have in the stuff you do for the church that you'd normally just blow off or you did it because you love God and the family?

Well, all of that monetized are unreimbursed ministry expenses.

Okay.

So all the way from 10% of your giving, you know, as a tithe to the district, national office, church, whatever to your mileage, your cell phone, you know, whatever you're doing for might be babysitting for your ministerial part of it, whatever it is, your curriculum, entertainment.

Well you can take all of that off first.

No income tax, no self employment tax, retirement.

You got a good secular job and you don't need the money.

Yeah, put it all into a 403B, not taxable on the way in, every other employee of the church or non profit has to pay self employment tax or Social Security tax and medicare tax on it and no income tax.

You don't pay Social Security, medicare tax, self employment tax.

And on the way out you can have it as a tax free as a retired minister's housing allowance.

Best tax advantage a pastor missionary can have is max as much as they can in their 403B bar none.

Doesn't matter if anybody matches it.

Doesn't matter whatever it is.

Your only best tax advantage.

It's the only one nobody talks about.

They only talk.

Oh yeah, because we never answered the question on the four horses, but we will.

That is the biggest one.

If you put 3% when you start ministry and the church matches it, or you put 5% in, the church matches it or let's say my golden rule, give God 10%, save 10%, pay your taxes, live on the rest.

You will have somewhere between 700 and 1,000 and a million dollars in your 403 at retirement and be able to live on 84,000 a year in retirement almost tax free.

Wow.

Well, so there's a hope and that all they're saying is the sooner you start, the better off you are.

Doesn't care if you can afford it if you can't afford it.

Maybe you got to think about what you're doing, but that is the most important thing.

So the four horsemen are number one, the tax myth that everybody in the brother thinks you guys get all these tax breaks and you guys are getting stabbed in the back.

It's not a tax break, it's a tax curse.

And why?

Why?

Well the pastor and the mechanic, the housing allowance.

Oh, it's all tax free, blah, blah, blah.

But instead of paying, you know, 12% or 0% tax bracket because you have no next to no income, you're paying a guaranteed 15.3.

So you're losing right off the bat, like on the pastor and the Mechanic.

Pastor making 50 grand, married, doesn't pay any income tax and still pays over a thousand dollars more than the mechanic even after you take into account his contribution to Social Security and everything else.

So the, the housing allowance is situational.

When you get over 125,000 of income, it starts being a definite benefit to the pastor.

Or if the pastor has a spouse that makes 50, 100, you know, 200,000, whatever, a lot of money.

It can be a definite plus because you're in a higher tax bracket and you're in the lower tax brackets where 75% of pastors are.

It's a curse.

Somewhat, you know, somewhat.

Two, exempting out of Social Security.

Everybody thinks, oh my God, they don't pay any income taxes.

Half of people in America don't think pastors pay any taxes at all.

I said no, churches don't, pastors do.

Oh, thought they're exempt.

No, they can exempt out, but they shouldn't.

Because unless you're going to be a mega church pastor getting paid hundreds of thousands of dollars, you can't afford to save enough off to not be in the Social Security system.

So this, you know, you trust in God and that's great, but God gave you a brain and said, be a good steward.

Yeah.

So if you can't save 10% right off the bat, 3% and grow it every year based on every raise, everything you do to get it up to 10% of your salary going into 403, if you're not in Social Security or have a very successful spouse, your retirement is not going to be what you want it to be.

But it's all situational and there's always hope.

It's never too late.

The third is churches don't have to take, withhold it, you know, oh, wow, wow.

We can do whatever we want.

We're self employed.

Except you can't take any expenses, so you can't play with that to reduce your income.

So, so we already know what you're going to get hit with.

Yeah.

So pastors are forced to figure out their estimates on their own.

The treasurers, you know, all the church treasures in the country.

I mean, there might be one in the country that's a pastoral tax expert, you know, or 10.

But you know there's, they get elected, they're doing their best, they have no clue how to structure pastors compensation so they don't know how to figure out your withholding, your estimated tax payments.

So who is going to help you?

Yeah, that's the biggest problem is surprise, unexpected horrible news.

They hand in their taxes and they find this horrible news because there's no weekly monthly paycheck by paycheck withholding.

Yeah.

Because churches don't can't withhold Social Security, Medicare tax and they can elect to have withholding.

But then they give the pastor A W4, they go married zero or married two and they have next to no withholding and they owe 6, 7 grand on their tax returns.

They have no idea why.

Yeah.

And their preparer just says, well you gotta pay Social Security tax.

Well, you tell them why not or how to avoid it or what they can do to pay in some do you know, we're not alone.

But that's the biggest problem is unexpected negative, you know, tax implications.

And so you can withhold, but any pastor, any church that gives a pastor a dump, before you can just throw that thing out, you take what the pastor's liability would be when you calculate it with the self employment tax and divide that after the tax credits by you know, any kids or something like that, but you divide that by 26 pay periods, 24 pay periods, whatever, how often you get paid.

That's what you have to have with out.

Yeah, yeah.

Or divide it by four.

That's your estimate.

There's no form that calculates that.

So that's the third one.

I mean it's.

So the exemption, the lack of withholding that really puts the pastor into.

They got to figure it out themselves.

Yeah.

The housing allowance in the lower income brackets is a curse.

And everybody thinks you get all these tax breaks.

It's.

Those are the four myths.

Yeah.

Yeah, good.

So you, one of the other things you mentioned was you've discovered that questions that a CPA or tax preparer should be asking and honestly I never, I never even considered that.

So what are some questions?

When you've done interviews with pastors, you've seen some common trends and then in those you've come up with a list of questions.

This is what your preparer should be asking or some questions they should be asking as they help you.

Could you share some of the those?

Well, you know, the bottom line is a lot of pastors because number one they avoid taxes because they're afraid of them.

I mean and most people are when I got a letter from the irs, I was petrified.

You know, I, it was horrible.

Sure.

You know, it ended up being okay.

But yeah, it's, it's understandable.

But people drop off their tax stuff and then they call them and the office calls them, tells them how much they owe.

Yeah.

Or what their refund is, depending if they have eight kids or not.

But if you're exempt from Social Security and you're married with kids, you probably don't have a care in the world about taxes.

You're going to get, you know, you got three kids, you make, you know, 60, 70, 80 grand and half of its housing.

You're not going to have any taxable income.

You're going to get free money back from the government for filing your taxes.

So you'll to have, have nothing paid in and 5 or $6,000, $8,000 refunds for the rest of your life until the kids are 17.

Okay.

And then out of college.

Yeah.

So cool.

Well, unless you're putting half of that away in your 403B, when you're 55, you're going to say, oh my God, what did I do?

Yeah, because you're not going to have a retirement.

So the tax preparers of the country, you know, the, the 70, 75% tax that don't.

They might enter a pastor's W2.

Right.

But they don't know how to plan it.

They have to be informed because when pastors drop them off, they don't know what to ask because they don't understand.

They say, oh yeah, I know pastors, I've done a couple.

But they do not know what the difference is in pastoral tax law and a normal person's tax law.

And it comes down to the housing, the 403B.

It comes down to the expenses and how they're.

But anybody that's passed the CPA has enough brains to figure that stuff out.

Yeah.

They, there's just, number one, there might be 500,000 pastors in the country.

Yeah.

And there's one 167 million tax returns that are going to be filed.

Yeah.

So, you know, it's, you know, not that big of a population.

So they don't go after it to teach it because there's no money in it.

And then you're dealing with a pop that overall is broke.

So.

And then I get all this garbage from these pastors that call and I said, I just charge a flat $300 to do Pastor's taxes.

Just you got to give value to give Back and all the counseling, the structure and everything I do free.

But I've get people in California, it's eight, $900.

New York, out in the East coast, five, $600.

Just because you're pastors, you're difficult.

It's like, my God, God, you poor guys.

Somebody's got to help them.

So we have to train the tax preparers.

So next year, hopefully I'll have a thing on how to get certified to be a pastoral tax preparer.

Wow.

Wow.

Very, very.

And then I'm also going to do a turbo tax.

How to do turbo tax for pastors using my tax saving strategies.

Because it's almost impossible for a pastor to use TurboTax and get it right.

Understandably so.

Understandably so.

But it's the questions.

They don't ask about housing.

They don't ask about your salary package.

They don't ask about your 403.

Because if your tax preparer doesn't know how to structure your compensation, he's not going to know how to plan it.

So they have to learn how to structure a compensation package and then they can learn how to structure it for taxes.

Wow.

So that's the biggest problem I see.

Wow.

One last question I got for you.

There's a pastor missionary that's listening in today.

You mentioned in the book, where will you be at 65?

What are some.

What are one or two things a pastor missionary could begin today to begin to think about that as they move towards the future when their, their taxes and to be prepared when they, when they get that age of.

I think mine's now 67, but 65.

67, that age of retirement.

What are one or two things they could be doing?

Well, it's never too late.

So as much as, oh my God, I missed the boat.

It's as soon as you can do as much as you can.

Okay.

Up to.

I always say the.

It's my golden rule in life.

It's.

And I didn't follow it all my life, but it's still my golden rule.

I'm a great hypocrite.

You know, do as I say, not as I do.

Do as I do.

Not as I say whichever works best for you, but do it because.

But if I tell you to buy a stock, do it.

But if I buy it, sell it.

But anyways, no, with the 403B.

Yeah.

Whether it's 3% or 5%, whatever.

You can start, you make 60 grand.

Okay.

5% is 3,000.

Right.

Okay.

250amonth, 125 a paycheck, start there or you know what, do what you can.

And then every time you get a raise up, then half of it needs to go in retirement and half of it needs to go for better living.

Because unless you increase your standard of living, why keep working?

So, you know, bifurcate it, do half of it, do a core.

But you know, people are into debt, people are into this, people are into that.

So start small, but then increase it every year and systematically.

But you know, something's better than nothing.

Sure.

And you know, God can provide for the rest, but you have to be diligent and it's horrible stewardship if you don't.

Don't.

Yeah, yeah.

So a normal pastor, a missionary with a 403B, they can do it on their self employment income and all that.

And the AG has MBA and you know, minister benefit and all that.

And it's automatic, it's easy to do.

It's like payroll reduction.

Yeah.

You know, and it comes right off the top of your income.

Yeah.

So you save 15.3% on every dollar you contribute.

You.

Yeah.

And income tax, because it's not subject to income tax.

So it's really, it's really a horrible thing if pastors and missionaries do not contribute because they're leaving so much on the table.

But let's face it, most aren't paid enough to live.

So it's really hard to come up with that extra five or ten grand, you know, so whatever you can do, do if you can get some outside giving, you know, anything like that, if you got a secular job on the side or your spouse does, try get that to go toward it, you know, I mean, so it allows you to go toward that because that adds income to your family, whatever you can do to get into it.

Because if you start off in your 20s as a minister at 3% with a 3% church match and you just keep that up all the way through your life, you're going to have half a million dollars in your 403B, you make 5% in the church, matches five all the way up, you're going to have 770,000 to a million dollars.

Yeah.

Yeah.

So steady plotting brings prosperity.

Yeah.

It's all about stewardship.

And you know, it's one of those things we usually find out too late when we're over our head in debt and credit cards and all this.

Well, then maybe we have to do 25 a paycheck, $50 a paycheck and get rid, get a plan to get rid of our debt.

Yeah.

Maybe we have to do this.

The David Ramsey of the world, the Crown Ministries of the worlds.

Maybe we have to practice some of that in our lives to get disciplined.

Because usually what we have is fear, lack of accountability.

Because of fear.

And lack of accountability in general.

And none of us want it, but we all know it's good for us.

Yeah.

And we.

And we 100% need it.

100% need it.

Scott, it's been an honor to have you with me today.

Will you pray for Source?

Yeah.

And just to let you know, in the future, I will come out with a little bit more tax guidance that's specific for missionaries because they are a different breed.

So during the year sometime, and I'll make sure you get notice of it.

Awesome.

But.

Awesome.

But, Lord, just help and guide these men of God.

They're here for you.

Their heart is after you.

They're very sincere people.

And often it's not that they're misled.

They're just not led because people don't know what to tell them.

So bring the right people in their lives.

Help them to gain the knowledge they need to make the right decisions.

And just number one, for the missionaries and what I've got on my heart from dealing with a pastor in the Maldives, and that is the number one thing that I can implant or input into a missionary's life is live the culture that you're living in, not the one you brought with you.

And that will help you to gain the relationships that you need to allow God for you to plant the seed and for God to water it, to get people in the Muslim nations and all the other nations of the world unto him.

So I just empower you to go forward, form those relationships and do God's work.

We plant the seed, and God saves.

God bless you.

Amen.

Amen.

Sam.